BANK DEPOSITS

A bank has two basic functions, namely:

• acceptance of deposits from the public, and
• lending the funds obtained from deposits.

Absent any of these two functions, particularly that of deposit, the

institution is not a bank. Although other entities are in the business of
extending loans, yet they will not be considered performing banking
business if they do not accept deposits from the public.
Contract of Loan - contract entered into between a bank and a
depositor. Art. 1980 of the NCC provides that-
• “fixed, savings and current deposits of money in banks and similar
institutions
• shall be governed by the provisions concerning simple loan”.

In addition to the above NCC Article, bank deposits are also

covered by special rules provided for by special laws and BSP
regulations.
 In China Banking Corp. vs. The Hon. C.A., 511 SCRA 110, 120,
defined a depositor as one who pays money into the bank in the usual
course of business, to be placed to his credit and subject to his check or
beneficiary held by the bank.

Since contracts are voluntary in nature, a bank may not be

compelled to accept deposits unless the action of the bank is shown to
be discriminatory. In fact the BSP, in compliance with the Anti-Money
Laundering Act, is quite strict on the acceptance of bank deposits as all
banks are required to adopt the Know-Your- Customer (KYC)
standards.
 The relationship between the depositor and the bank is that of a
creditor and debtor. The obligation of the bank is to pay the creditor and
not to return exactly the same thing that was given.

Some pertinent jurisprudence on this creditor-debtor relationship-

• the bank can make use as its own the money deposited (Tan
TiongTick vs. American Apothecaries, 65 Phil. 414)

• officers of the bank cannot be held liable for estafa under Art. 315
(1)(b)of the Revised Penal Code for authorizing the use of the
money deposited, even if the bank failed to return the amount
deposited. The money that is deposited is not held in trust by the
bank (Guingona vs. City Fiscal of Mla, 128SCRA 577)
• 3rd persons who may have a right to the money deposited cannot hold the
bank responsible unless there is a court order or garnishment. The duty of
the bank is to its creditor-depositor and not to 3rd persons (Fulton Iron
Works Co. vs. China Banking Corp., G.R. No. 32576, Nov. 6, 1930). If a
3rd person has a valid right over the money deposited, he must prove the
same before a court of competent jurisdiction.

• bank deposits are not preferred credits under the Civil Code (Central Bank
vs. Morfe, 63 SCRA 114)

• the bank has the right to compensation. It can set-off the deposits with the
indebtedness of the depositor that are due and demandable (Gullas vs. PNB,
62 SCRA 519).
 Likewise, it can set-off the value of dishonored checks that were
previously credited (BPI vs. C.A., et. al., G.R. No. 136202, Jan. 25,
2007).

NOTE:
• bank deposit not a trust under the NCC. The amount is delivered to the bank
by the depositor not as trustor but as a creditor. In an ordinary trust agreement,
the trustee does not become the owner of the property; whereas in a deposit the
bank becomes the owner of the cash that was deposited subject to the
obligation to pay the depositor. Unlike an ordinary trustee who cannot use the
money held in trust for his own benefit, the bank is free to use the money
deposited for its own use.
Unilateral Freezing of Account, Not Allowed-
The person whose name appears in the passbook as depositor and
other bank documents is presumed to be the owner of the money in the
bank account. The depositary bank does not have a unilateral right to
freeze the accounts of its depositor based on its mere suspicion that the
funds therein were proceeds of fraudulent acts.(BPI Family Bank vs.
Amado Franco and Kurtis of Appeals, G.R. No. 123498, Nov. 23,
2007)

But a bank must not release the funds if the same was already
garnished at the instance of third persons.
Bank’s Insolvency: Effect on Deposit

• As deposits are protected only up to the extent of the deposit insurance

of the PDIC, any excess amount is treated as an ordinary unsecured
credit which may be defeated by other preferred claims like claims for
unpaid taxes as well as claims of secured creditors.
Process of Depositing in a Bank Account

In Phil. Bank of Commerce vs. C.A., G.R.No. 97626, March 14, 1997, The Court
described the process as follows:

1. current account deposits are accepted by the bank on the basis of deposit slips
prepared and signed by the depositor, the latter’s agent or representative;

2. who (depositor) indicates therein the current account number to which the deposit
is to be credited;

3. the name of the depositor or current account holder,

4. the date of the deposit,

5. and the amount of the deposit either in cash or checks.

• The deposit slips are prepared by the depositor in duplicate- the
original is retained by the bank while the duplicate copy is returned or
given to the depositor.

• Also, the bank may directly credit the account of the depositor
whenever the bank is obligated to pay an amount to the same
depositor.
Deposit Slips -
They serve as proof that an amount was deposited in an account.
In Prudential Bank vs. Chonney Lim, ___________________, (pg. 56,
Red Book)

Due Diligence required in the Validation of Deposits -

In Phil. Bank of Commerce, et. al. vs. C.A., Rommel’s Marketing
Corp., et. al., 269 SCRA 695, the Supreme Court ruled that the bank
cannot be relieved of liability if it validated blank or incomplete
duplicate copies of deposit slips thereby facilitating the taking of the
funds of the depositor by the latter’s employee.
 In another case - Firestone Tire and Rubber Co. of the Phil. vs.
C.A., 353 SCRA 600, 601, a bank was likewise made liable when it
accepted withdrawal slips for deposits which turned out to be unfunded.
The fact that withdrawal slips were honored in the past does not excuse
it from liability. The bank bears the risk attendant to the acceptance of
the withdrawal slips.
Withdrawals –

• for cash deposits, anytime withdrawals subject to prescribed

procedures

• for check deposits, withdrawal may only be allowed after drawee

bank clears the amount covered by the check.

• Demand Deposits - withdrawable through checks

• Savings Deposits - withdrawable through withdrawal slips

 With Savings Deposits, depositor’s passbook must be presented
with the withdrawal slip. A bank is negligent if it allows withdrawal
without requiring the presentation of the passbook (BPI vs. C.A., 326
SCRA 200)

Withdrawals from a bank account can be made upon the authority

of the depositor as reflected in the withdrawal slip. However, a bank is
liable if it allows withdrawal of funds on the basis of forged signatures
in the withdrawal slips.
 A bank which allows unauthorised withdrawals can be required to
return the amount illegally withdrawn plus 12%/annum interest in the
absence of interest stipulation from the time of demand (Citibank N.A.
vs. Sps. Luis & Carmelita Cabamongan, 488 SCRA, 517, 533-534).